Gold Rallies as Fed Signals Pause on Rate Hikes, Inflation "Progress Has Stalled"

Gold prices surged on Wednesday after the Federal Reserve left interest rates unchanged and struck a more dovish tone, acknowledging that progress on lowering inflation has stalled. The precious metal, often viewed as a hedge against inflation, benefited from the central bank's signal that further rate hikes are unlikely in the near term.

In his press conference following the Federal Open Market Committee (FOMC) meeting, Fed Chair Jerome Powell remarked, "I think it's unlikely that the next policy rate move will be a hike. I'd say it's unlikely." This statement contrasted with previous hawkish rhetoric from the Fed, which had been adamant about the need for continued rate increases to tame stubbornly high inflation.

Powell also admitted that the central bank is not gaining "greater confidence" in inflation's downward trajectory, a key condition for a potential pause in rate hikes. "I can just say that when we get that confidence, then rate cuts will be in scope. And I don't know exactly when that will be," he said, adding that the Fed did not see sufficient progress on inflation in the first quarter.

The FOMC statement and Powell's comments were perceived as a dovish pivot by market participants, who had been anticipating a more hawkish stance from the Fed. As a result, gold prices, which had been trading modestly higher ahead of the meeting, surged in the aftermath of the central bank's communications.

As of 4:55 PM EDT, gold basis the most active June contract had rallied by $25.60, or 1.12%, to settle at $2,328.80 per ounce. The sharp increase in gold prices was also aided by a weakening U.S. dollar, which lost 0.69% against a basket of major currencies.

Phillip Streible, chief market strategist at Blue Line Futures in Chicago, commented on the market's reaction, stating, "I believe that we're in like a stagflationary environment that the Fed will ultimately end up cutting at some point forward. In order to rekindle a new flame back up to $2,400, we need a new trigger, and then we start talking all-time highs again."

While the Fed left open the possibility of future rate hikes if inflation fails to moderate, the central bank's acknowledgment of stalled progress and its reluctance to commit to further tightening provided a significant boost to gold prices. Investors seeking a safe haven amid economic uncertainty and the prospect of a potential pause or even reversal in the Fed's rate hike cycle flocked to the precious metal.

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